Public Service Co. of Colorado v. Wallis and Companies

• Decision Date: 10 July 1997
• Docket Number: No. 96CA0333,96CA0333
• Citation: 955 P.2d 564
• Parties: 21 Colorado Journal 981, 97 CJ C.A.R. 2205 PUBLIC SERVICE COMPANY OF COLORADO, a Colorado corporation, Plaintiff-Appellee and Cross-Appellant, v. WALLIS AND COMPANIES, Defendant-Appellant and Cross-Appellee. . IV
• Court: Colorado Court of Appeals

Page 564

955 P.2d 564

21 Colorado Journal 981, 97 CJ C.A.R. 2205

PUBLIC SERVICE COMPANY OF COLORADO, a Colorado corporation Plaintiff-Appellee and Cross-Appellant, v. WALLIS AND COMPANIES, Defendant-Appellant and Cross-Appellee.

No. 96CA0333.

Colorado Court of Appeals Div. IV.

July 10, 1997.

As Modified on Denial of Rehearing

Oct. 2, 1997.

Certiorari Granted May 26, 1998.

Slivka, Robinson, Waters & O'Dorisio, P.C., Richard P. Slivka, Denver, for Plaintiff-Appellee and Cross-Appellant.

Freeborn & Peters, Margaret S. Garvey, Marsha M. Piccone, Denver, for Plaintiff-Appellee and Cross-Appellant (on the Briefs).

Overton & Feeley, P.C., Robert W. Smith, Denver; William H. Remine, P.C., William H. Remine, Denver; Blatt, Hammesfahr & Eaton, Bruce M. Engel, David W. Alberts, Chicago, IL, for Defendant-Appellant and Cross-Appellee.

Opinion by Chief Judge STERNBERG.

Public Service Company of Colorado (PSC) sued Wallis and Companies (Wallis), representatives of certain underwriters at Lloyd's, London, and of other London market insurance companies, for the costs of environmental cleanup activities resulting from PSC's contamination of three sites. PSC prevailed in whole or in part on claims relating to two sites; Wallis on one. Both parties appeal. We affirm in part, reverse in part, and remand for a new trial.

The Barter Yard

Barter Machinery & Supply Company was in the scrap metal business. From the late 1940's to 1985, PSC sold to Barter scrap electrical equipment which contained lead and polychlorinated biphenyls (PCBs). These substances contaminated the soil and groundwater at the scrap yard. When Barter notified PSC of the contamination, the two entities investigated the nature and scope of the contamination to determine the cost of remediation. Because Barter could not afford the cost of the cleanup, PSC agreed to fund the cleanup in exchange for title to the site, and cleanup activities began in 1992. PSC and the Environmental Protection Agency (EPA) agreed on the appropriate extent of the cleanup.

The Lowry Landfill

Between 1966 and 1980, along with approximately 200 other industrial entities, PSC arranged for the disposal of industrial wastes at the Lowry Landfill. In 1984, EPA placed the landfill on its "Superfund" list pursuant to the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), 42 U.S.C. § 9601, et seq. (1994). EPA notified PSC that it was a "potentially responsible party" (PRP) in 1988. Ultimately, PSC entered into an agreement with Waste Management, Inc., under which PSC paid a certain sum in exchange for full indemnification for its liability at Lowry.

The Pueblo Gas Plant

From 1881 to 1928, PSC's predecessors operated a manufactured gas plant in downtown Pueblo. One of the by-products of the manufacturing process was coal tar, which was stored in underground wells for later resale. When PSC took over the site in the 1950's, it was unaware of the history of the site or the possibility of environmental contamination. In 1989, when PSC was landscaping the property, it discovered the underground wells and began an investigation into the contamination. The investigation revealed that the contaminated groundwater was migrating off site, and PSC subsequently ordered the cleanup of the site.

The Lawsuits

In 1992, PSC filed three separate lawsuits (one for each site) against its various insurers, seeking declaratory judgments on PSC's rights under the insurance contracts and damages for alleged breaches of those contracts. All of the insurer groups except Wallis settled with PSC before trial.

The suits against Wallis were consolidated for trial, and the jury returned verdicts in favor of PSC and against Wallis for the costs incurred at the Barter and Lowry sites. However, the jury ruled in favor of Wallis on the Pueblo claim, concluding that PSC had failed to give timely notice of its claim.

I. Legal Liability

Wallis first argues that PSC was not "legally liable" within the meaning of that phrase in the insurance policies for the cost of the environmental cleanup at the Barter site and that, therefore, its costs there were not covered by the insurance policies. We disagree.

A. "Legal Liability" Defined

The policies at issue here provide that the insurers will "indemnify [PSC] for any and all sums which they ... shall be legally liable to pay ... as more fully defined by the term 'ultimate nett loss'...." The trial court instructed the jury that PSC was "legally liable" for the costs of cleanup at the individual sites if it was required to engage in such cleanup activities by law, and further that: "It is not necessary that anyone actually commenced a lawsuit to compel Public Service to clean up [the sites]; it is sufficient that a statute or regulation imposes responsibility upon Public Service for such a cleanup." The court also instructed the jury that PSC was "legally liable for all of the costs of cleaning up the contamination at the Lowry Site and Barter Site under applicable federal environmental laws."

Cleanup of much environmental contamination is governed by CERCLA. Wallis argues that, because the EPA did not designate the Barter site as a CERCLA site, and because the EPA did not take action to subject the site to CERCLA cleanup requirements, PSC had no "legal liability" for the cleanup, and its voluntary activities should not be covered by the policies.

However, the policies do not contain any requirement that an environmental enforcement action be filed before coverage is triggered. If the insurers had intended to provide coverage only when an enforcement action or lawsuit was brought, such a requirement could have been included in the policy language. We decline to add language to the insurance contract that was not part of the agreement between the parties. See Weyerhaeuser Co. v. Aetna Casualty & Surety Co., 123 Wash.2d 891, 874 P.2d 142, 154 (1994) (addressing a similar "voluntary payment" argument, the court stated: "In the case where there has been property damage and where a policyholder is liable pursuant to an environmental statute, a reasonable reading of the policy language is that coverage is available, if it is not otherwise excluded.").

In rejecting similar defenses to that advanced by Wallis, other courts have referred to the congressional purpose of encouraging private party environmental cleanup. See Maryland Casualty Co. v. Wausau Chemical Corp., 809 F.Supp. 680, 696 (W.D.Wis.1992):

The legislative history of CERCLA provides evidence that the stiff penalties for failure to negotiate with EPA were intended to make the primary force behind cleanup efforts voluntary settlements, rather than drawn-out litigation. See H.R.Rep No. 253, 99th Cong., 2d Sess., pt. 1 at 101 (1985), U.S.Code Cong. & Admin. News 1986, 2835, 2883 ('negotiated private party actions are essential to an effective program for cleanup of the nation's hazardous waste sites and it is the intent of this Committee to encourage private party cleanup at all sites'). To hold that such settlements are 'voluntary' for purposes of an insurance policy exclusion would frustrate the intent of Congress.

As noted in Compass Insurance Co. v. Cravens, Dargan & Co., 748 P.2d 724 (Wyo.1988), the fact that the insured commenced cleanup efforts before formal claims were filed is a credit to the insured, not an excuse for the insurer to deny coverage.

B. Liability under CERCLA

Wallis argues further, without supporting citation, that the court's instruction on joint and several liability under CERCLA was erroneous as a matter of law. We perceive no error.

CERCLA imposes joint and several liability on potentially responsible parties regardless of fault. 42 U.S.C. § 9607 (1994); County Line Investment Co. v. Tinney, 933 F.2d 1508 (10th Cir.1991); Hecla Mining Co. v. New Hampshire Insurance Co., 811 P.2d 1083 (Colo.1991).

Although 42 U.S.C. § 9613 (1994) authorizes responsible parties to bring contribution actions against one another, courts have been reluctant to apportion costs between potentially responsible parties, and have done so only when a party can demonstrate that the harm is divisible. See United States v. Colorado & Eastern R.R. Co., 50 F.3d 1530 (10th Cir.1995); County Line Investment Co. v. Tinney, supra; O'Neil v. Picillo, 883 F.2d 176 (1st Cir.1989). Here, the court correctly instructed the jury on joint and several liability under CERCLA.

II. The Pollution Exclusion to the Insurance Policies

A. Burden of Proof

Wallis asserts that the "pollution exclusion" clause contained in the policies in effect between 1971 and 1977 precludes PSC from recovering on its claims, and that the trial court improperly instructed the jury as to the burden of proof on the applicability of the exclusion. Specifically, Wallis argues that it was PSC's burden to prove that the "sudden, unintended, and unexpected" exception to the exclusion applied. We agree that the trial court incorrectly shifted the burden of proof.

The clause at issue here, entitled "Industries, Seepage, Pollution and Contamination Clause No. 3," reads as follows:

This Insurance does not cover any liability for:

....

(2) The cost of removing, nullifying or cleaning-up seeping, polluting or contaminating substances unless the seepage, pollution or contamination is caused by a sudden, unintended and unexpected happening during the period of this Insurance.

Generally, in disputes over insurance coverage, the insurer bears the burden of proving the applicability of any exclusion from coverage. The burden then shifts back to the insured to prove the applicability of an exception to the exclusion. Rodriguez v. Safeco Insurance Co., 821 P.2d 849 (Colo.App.1991).

The trial court here rejected Wallis' tendered jury instruction shifting the burden to PSC. Instead, over Wallis' objections, the court instructed the jury that Wallis had the burden of establishing first that the property damage resulted from contamination and,...